Original Author: David Christopher
Original Translation: Deep Tide TechFlow
Deep Tide Overview: A perpetual contract exchange that gradually transforms losing traders into "whales" will launch tomorrow. It replaces counterparty trading with a shared capital pool, rewards losers with tokens, and turns liquidations into ownership. For traders and DeFi practitioners, this is an extreme stress test of incentive design and risk boundaries.
One of the strangest perpetual contract experiments in DeFi is about to launch.
Papertrade is a perpetual contract exchange built on HyperEVM (the smart contract layer of Hyperliquid), co-founded by well-known "semi-anonymous" traders Jez and Blurr. Pre-deposits opened yesterday, with live trading set to start tomorrow, October 10, marking the anniversary of last year's epic cryptocurrency crash.
When we dissected Papertrade in May, its proposal sounded outrageous: up to 1000x leverage, no slippage, no funding rates, and a token PAPER, where traders earn by losing.
Five months later, here’s a quick overview of how it works, how the weekend launch will unfold, and the ecosystem that has formed around it.
How Papertrade Works
Papertrade is essentially a casino, in which losing traders gradually become owners of the future profits of the casino.
Papertrade does not match traders through an order book, nor does it use external market makers. Instead, it uses a shared USDC capital pool, called Martingaler LP, as the counterparty for every trade. This capital pool starts at $0 and is filled by the losses of traders.
This LP is its true innovation, operating as follows:
Place an Order: Deposit USDC (minimum $10, plus a one-time $1 activation fee), then bet on BTC or ETH with up to 1000x leverage.
Profit and Compensation: If your trade is profitable, you can reclaim your original margin and receive profits from the capital pool. If the capital pool lacks sufficient funds, unpaid profits will queue on a first-come, first-served basis. For example, if you are owed $100 and the next trader lost $60, you will first receive $60, and the remaining $40 will continue to wait.
Losses and Earn PAPER: If your position incurs a loss or gets liquidated, the loss amount will enter the capital pool, and PAPER tokens will be minted and issued to you. When the capital pool is below $2 million, every eligible $1 loss can earn up to 100 tokens. As the capital pool grows, this exchange rate will decrease.
Stake PAPER: You can stake PAPER to earn USDC income from trading fees, proportional to your share. Once the capital pool exceeds $5 million, additional earnings from the capital pool can also be allocated to stakers.
These are just the basic mechanisms; if you want to dive deeper, we strongly recommend reading our original article and Papertrade’s documentation for a more comprehensive understanding of the protocol.
How the Launch Weekend Will Unfold
Considering that HyperEVM may experience congestion due to high activity, a gradual rollout is expected rather than all users trading simultaneously.
To this end, Papertrade has set several launch phases:
Phase 0 (Thursday): Pre-deposits opened yesterday and will continue until launch. Early deposits do not increase trading priority, but additional funds after the launch may experience delays due to on-chain congestion.
Phase 1 (Saturday): Trading will begin through the Papertrade website, where approved service providers will submit your on-chain signed transactions. This design aims to limit the ability of bots to jump the queue. Liquidations will take precedence over new positions, and small trades may wait longer.
Subsequent Phases: Bots and AI agents will be able to trade directly, and third-party applications can earn fees by onboarding traders. PAPER will ultimately become transferable. It cannot be sold at launch.
Trading is expected to start about an hour after the Saturday HyperEVM upgrade, although the exact timing has not been announced and there is a small chance of delay until Sunday.
Who Is Waiting to Enter
If you are not a trader, an ecosystem has already formed around Papertrade, providing other ways to participate in this chaos. For example:
DX Research Group / DXAP: The team behind DX Terminal operates DXAP, an invite-only application that allows AI agents to trade users' Hyperliquid accounts. Founder poof stated that its Superclip agent program will trade using DXAP users' funds, although the specific method is still unclear.
PaperStrategy: This is an anonymous project that uses 90% of the tax from PSTR token trading to fund strategies for accumulating and staking PAPER. Of the USDC staking income generated, 90% is used for repurchasing and burning PSTR, while 10% goes to the team.
PaperDAO: PaperDAO completed fundraising on October 7 through daos.world, pooling user funds into a treasury with plans to mine PAPER and stake to earn USDC income at launch. Its PULP token represents a proportional share of the treasury and can be exchanged after PAPER is open for transfer.
The Bottom Line
Despite its high hype, there are still many risks to be aware of:
Delayed Compensation: If too many traders are profitable, the capital pool may experience a shortage, causing profitable traders to wait indefinitely for payout.
Price Manipulation: Manipulated Hyperliquid prices (which serve as an oracle for Papertrade positions) may allow traders to unfairly withdraw funds from the capital pool.
PAPER Mining: As noted by Delphi Digital's tempest, paired long and short positions may allow traders to mint PAPER at low cost, diluting existing holders without significant cash inflow to the capital pool. PAPER itself may also never be worth the cost that traders incur to obtain it.
Extreme Leverage: At 1000x leverage, a price movement of about 0.1% against your position can wipe out the margin.
Nonetheless, the imagination of the protocol is stunning, and the hype surrounding its launch clearly indicates that this release cannot be ignored. Whether Papertrade will ultimately succeed remains to be seen, but it is indeed refreshing to see truly different things entering the market.
DeFi needs more experiments like this.
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